Tuesday, April 29, 2014

Should economists be advocates or engineers?

Chris House has two posts (first post, second post) criticizing Paul Krugman and me for being too politically liberal in our discussion of Tom Sargent's 2007 Berkeley commencement speech. While I'm flattered that Chris puts me on the same level as Krugman in terms of influence (ha), I think Chris is wrong on multiple levels. Let's go through these levels of wrongness from least important to most.

First off, I didn't even think my own post was that liberal. After all, I did write: "If I were giving a graduation speech to students at Tokyo University, I'd tell them much the same thing [Sargent told the Berkeley grads]."

Second, Chris doesn't like my assertion that sometimes there is no equity-efficiency tradeoff. He writes:

Noah Smith...writes that it’s not generally true that there is such a tradeoff and he cites the Second Welfare Theorem as justification.

I know there are exceptions but they are just that – exceptions. The truth is that if we want to really attack the problem of income inequality (promote equality and help the poor) then we are going to have to take stuff away from richer people and channel it to poorer people. This kind of action will most likely have consequences for markets and these consequences will be unsavory. Paul and Noah could argue (quite strongly I suspect) that these costs might be relatively small but they should not act as though they really think there are no costs.

The Second Welfare Theorem was not "justification" - it was an example. It's a common, simple example from intro econ, which is why I used it. But it's certainly not the most realistic or important example of situations in which there is no equity-efficiency tradeoff, even in a universe where conservatives are right about everything.

For example, take minimum wage. According to conservatives, minimum wage hurts efficiency (because it distorts prices), and it also reduces equality (because it forces some workers into unemployment while raising the incomes for those who keep their jobs). According to conservatives, killing the minimum wage would increase both equality and efficiency.

Or take rent control. Conservatives say rent control hurts efficiency (because it distorts prices) and equality (because it excludes poor people from the city). Thus, conservatives think eliminating rent control would increase both equality and efficiency. (And FYI, I happen to agree completely.)

Chris House is thinking about equality-efficiency tradeoffs only in the context of one single policy - redistributive taxation. Yes, that is an important policy. Yes, the tradeoff exists in that realm. But that does not mean that equality-efficiency tradeoffs are a universal feature of economic models - in fact, they're not. Nor, I think, did Tom Sargent mean to present them as such.

OK, but now let's get to my final and biggest problem with Chris' two posts: politics.

I understand the reactions by Noah and Paul. I just wish they wouldn’t succumb to the temptation to write this stuff. The truth is that most of the principles of standard economics carry with them a fairly conservative / neo-liberal message...

Talking in an echo chamber can be fun but public intellectuals like Paul and Noah have a greater responsibility to self-censor than most because they have large audiences. They have a responsibility to the public and also a responsibility to their liberal readers who take their statements to heart.

Chris seems to think that Paul and I are whipping up leftist mobs with bad science - that if we were responsible scientists, then we would advocate generally conservative policies, because the facts support generally conservative policies.

But most importantly, I disagree strongly with Chris about the role of economists in the public sphere. One view of economists has always been that they should be advocates, leaning against the wind of popular opinion when appropriate. If the mass of Americans is a mob of raving rightists, we should emphasize the liberal implications of economic research; if it's a mob of raving leftists, we should emphasize the conservative implications. Economists will thus be an anchor on public opinion, stabilizing it against fads and fashions.

I have some sympathy for this view, and I might engage in a bit of this myself if giving a graduation speech or making dinner conversation. But I also think this sort of behavior is very dangerous. If done on a regular basis, it requires economists to always be thinking about politics. And I think that is very bad. Because if you always think about politics, then politics will begin to color your research, and your evaluation of other people's research.

If you think that "the facts have a conservative bias", then when writing a paper, you may reject or ignore empirical findings or theoretical results that have liberal policy implications. When reviewing a paper, you may be more skeptical toward papers that seem to have liberal implications, or even just a liberal tone or emphasis. And if enough people do that, then it becomes a self-fulfilling prophecy, because a conservative political bias will start to color the literature itself, reinforcing the idea that "the facts have a conservative bias". Econ's usefulness as a technocratic, engineering discipline will be sacrificed to the goal of political advocacy. (Incidentally, it also tends to make outsiders view the field as a hacky pseudoscience.)

My impression is that economics fell victim to a little of this after the 1960s. At that time, communism was a real threat. If communist policies (meaning a Russia-style command economy, not Sweden-style redistribution) had been enacted in America, it would have been a massive human disaster. So economists became a self-appointed bulwark against communism. Fine. Physicists built the atom bomb too. But since the 60s, the extreme situation of the Cold War has relaxed into a world in which the dangers from extreme policy are small. And, to its credit, the econ profession seems to have become a lot less politicized. In other words, the profession is moving from advocacy to engineering.

The trend is a good trend, and should be continued. When speaking or writing in the public sphere, economists should feel free to voice their own political opinions, but should deliberately ignore the political implications of the data or theories they report - which means being perfectly willing to report "liberal" conclusions to a potentially liberal audience, without worrying about whether it's an "echo chamber" or not. Of course, that's is easier said than done, but I think it's the ideal.

So no, I'm not going to say wrong things just to contradict the political ideology of whoever might be reading. That would be silly.

I have no objection to an organized fight against the forces that make firearms proliferate, and the promotion of broad-based health care in the United States, for example. What I object to are bad economic ideas, and the misrepresentation of sound academic work in economics. And I think that is part of what gets propagated by at least some members of what is being characterized as a "progressive" group here. I think Mark Thoma and Simon Wren-Lewis are honest and have good intentions, but Krugman and DeLong? Not so much.

Personally, knowing both Krugman and DeLong, I am pretty sure that they too are honest and have good intentions. Anyway, I agree with Williamson that the "misrepresentation of sound academic work in economics" for political ends is a problem. But I also agree with Krugman that this is still more common on the American right than the American left, probably as a relic of the struggle against communism.

86 comments:

I had to stop reading House's blog. It's just the same nonsense, over and over again, damn the facts. His perspective is warped and basically unchangeable.

This sentence--"then we are going to have to take stuff away from richer people and channel it to poorer people. This kind of action will most likely have consequences for markets and these consequences will be unsavory"--is just damning. Anyone who writes this kind of drivel (first part is true, but second part, dear God, "unsavory" for WHOM???) obviously has no nuance and is incredibly unlikely (except in the broken clock sort of way) to ever contribute anything of value to the conversation.

He knows what is right. He's decided that it's something he heard a long time ago, and there is no need to further facts or analysis, just defense of something he foolishly adopted in his youth.

I want someone to be a bulwark against the worst tendencies of the left, but I don't need ideologues who have ceased to think. He's a waste of time.

Is unsavory a measurable outcome (or a value judgement)? The law of diminishing marginal utility suggests that wealthy individuals gain less utility per dollar of marginal spending so redistribution will increase global utility ceteris paribus. Equally, looking at marginal propensity to consume, more of that redistributed income will be spent as thee poor spend more of any increase in income. in 2008, this have been a. more distorting and b. more successful than bailing out the banks?

Taking away from the wealthy also may have unintended positive outcomes. The 2001 tax cut was a huge factor in feeding the speculative housing bubble. Taking away money that will go into a speculative bubble is a huge positive outcome. The same argument goes to why Social Security should not be privatized--there aren't enough good investments out there, and it would feed huge bubbles.

I like the idea of this post, but it's kind of flying in the face of the evidence. Economists are as politicised as ever, as involved in pushing favoured policies (witness Reinhart & Rogoff) as ever - not to mention as attached as ever to particular models. This is a long way from an engineering mindset.

There are thousands of economists around the world and only a few write in the New York Times, advise politicians, and make public statements.

The majority of economists work quietly on important research topics, making steady progress without appearing on CNN/Fox News, dining with Congressmen and Senators, or even writing blogs. What's more- they don't really care a lot about what Paul Krugman, Tom Sargent, or Grew Mankiw's public statements simply because those public statements are most likely meaningless to their actual research.

The maximum extent of their political activity may be that they are affiliated with a think tank, which is at most an indirect and inconsistent political connection.

Of course, people have a skewed view of how politically active economists are because the economists they have heard of are by definition the active ones.

Just to put it to Chris House very directly, a simple bivariate regression using nations as data points will find a negative, if somewhat weak, correlation between growth rates and Gini coefficients, that is income inequality. At the crudest of all levels, altthough this can be disupted with more complicated models, there is no general equity-efficiency tradeoff, but, if anything, a positive relation between equity and efficiency as promulgated by Okun originally.

Sargent was just full of it, and House is making a fool of himself with this drivel.

Just for the record, one gets a better fit with an inverted U-shaped relation between Gini coefficients and rates of economic growth, although if one just related levels of per capita income, it is weakly negative. In any case, the equity-efficiency tradeoff is something that simply does not hold as some sort of generalized "lesson" that anybody should be spouting off to a general audience. It simply does not hold.

"Facts have a conservative bias." One great thing you can always expect from the anti-intellectual modern conservative movement is that they are not so anti-intellectual that they won't try to repurpose an attack that smart liberals have produced.

House repurposing the self-evident "facts have a liberal bias" meme may not be as classic as climate change denialists all of a sudden accusing *others* of cognitive bias, but it's still one helluva ballsy move.

I mean, there's a lot worse hypocrisy on the right, but man, not much that's this hilarious.

"It is not facts that have a conservative bias. It is economic theory that does."

It's not even economic theory, but the popularization of economic theory that has a conservative bias. Conservatives were really strong in the period 1975-1985 in making the case that economics favors conservative policies, and that popularization has stuck since then.

I would submit that Freeman made the utility of a highly politicized political economy known to the GOP before the Nixon administration and incorporated it into the classical program of American hemispheric dominance, most specifically in Chile in 1968.

If you assume Total utility = GDP, it's still entirely plausible that taxing the rich to provide universal childhood education and safe water and sewers is the right thing to do; indeed, I don't know a single country that has gotten anywhere close to a first world GDP without at least providing these services to the bulk of its population.

Eric - I agree. I was trying to make two separate points. The first was that sometimes even on the most right wing basis possible, some steps that increased equality also increased efficiency and ultimately wealth for everyone.

The second point I was trying to make is that picking the social utility function we are trying to maximize has a huge impact on the policies economics would recommend. A lot of right wing types seem to just assume that Total Utility = GDP and think everyone else should accept that assumption. Economics can talk about the form of production functions and the consequences of different policies. Which utility function a society chooses to try to maximize is what politics is all about.

But facts do have a conservative bias! Bias is the deviation from the true value. So if facts have a conservative bias, then we assume that they are more conservative than they actually are. This is why you can say that economics goes more in hand with conservatism - if you forget everything about imperfect markets, externalities, information assymetries, irrationality, herd thinking and so on and on.... then yes, free market conservatism is the correct policy.

you are correct that believing in free lunches is neither a conservative nor a liberal thing. Liberals like to claim that raising the minimum wage has no negative effect on employment. Conservatives like to claim that cutting taxes raises tax revenue because of supply-side effects. So the problem with your and Paul's position is not that you are liberals, in the same way that the problem with Arthur Laffer is not that he is conservative. The problem with all three of you is that you violated the first rule of economics: Always be the party-pooper (or the dismal scientist if you prefer)!

Being a party-pooper, telling people that they cannot have the pie and eat it too, is one of the most important role of economists because people tend to see free-lunches everywhere when in fact free lunches are extremely rare. In such a world, is it more important to emphasize that such lunches do not generally exist, or to talk about the very few theoretically possible but questionable exceptions? In my opinion, in the vast majority of cases when an economist chooses to do the second it is for the purpose of serving his or her ideological agenda. So to accuse someone who chose the first as an ideologue is somewhat ironic.

There are two problems with making econ about reminding everyone that there is no free lunch. The first problem is that no economist is or ever would be consistent about when they bring out the "there is no free lunch" line. For example, take free trade agreements. Many economists believe that these have done more good than harm and that further expansion would be a good thing, but no one serious would say that they are free lunches -- there are many who have been more hurt by free trade than helped. Likewise many would be more hurt than helped by cuts to the minimum wage, or for that matter the de facto cuts to the minimum wage that happen every year due to inflation. Hell, even Russia's transition from communism to capitalism was pretty far from being a free lunch. Should it be the job of every economist when things like these are being discussed to remind everyone that there is no free lunch? I actually don't think that would be a bad idea, but that shouldn't be the primary job of an economist because...

The second problem is that is just too restrictive of a standard to be useful. Practically nothing's a free lunch, so an economist can't honestly advise anyone to do anything if they believe in this standard. Why don't we look for a delicious lunch at a good price instead? The question should be what will do more good than harm? You might object that this is poorly defined and there is no one right way to assess this, and you would be right, but that should be the goal anyway, because otherwise economics is of no import whatsoever.

Let me try again. The vast majority of policy choices involve trade-offs. The vast majority of people who support these policies operate under the impression that there are no trade-offs. What is more important to emphasize, the rule or the exceptions? Especially when the alleged exceptions are not clearly exceptions? Do you really think that if the government hired half of the currently unemployed to, say, pick up cigarette butts from the side of the road there is no cost because in the model the SRAS curve is flat? I hope not!

Mike,depends on which liberal you ask. Moreover, negligible involves value judgment. But you characterization of every researcher whose results agree with Nuemark's as his "buddy", and they are many, says a lot! The truth is that everybody lies, although I agree that in recent times conservatives lie more.

One problem with your argument is that we've seen employment increase during periods when the minimum wage was rising, but we still haven't seen rising tax revenues after a tax cut. Both sides don't do it.

Economists are always arguing that there are no free lunches, then they argue that free trade is win-win or that taxes hurt growth or that wage cuts create jobs. If there are no free lunches, then it becomes even more important that we keep an open mind about what to put in the lunchbox.

Well, the minimum wage was raised right before the recession, so the raise was followed by a big drop in employment. And the Reagan tax cuts were followed by a boom and increasing revenues in the 1990s. What does this prove? Nothing! You need careful studies that control for other influences, lagged effects, etc. By the way, on the minimum wage, here is Christina Romer:http://www.nytimes.com/2013/03/03/business/the-minimum-wage-employment-and-income-distribution.html?pagewanted=all&_r=0and here is Paul Krugman back in the 1990s:http://www.pkarchive.org/cranks/LivingWage.html

Are they also right-wing ideologues? As a personaI note, my position is very close to Romer's.

I'm not sure why taking money stashed under someone's mattress (or offshore account) and distributing it to needy people to spend must damage the economy. I can see why writing a tax code to do that without also hitting money that is being usefully employed in the economy might be difficult, but I don't see why it would be impossible, by definition. It seems like a 50% estate tax on billionaires would likely increase the economy's efficiency rather than reduce it unless it can be shown that their children will have an especially greater ability to effectively use this money more than anyone else.

I do not understand why the marketplace of ideas won't address Chris' issues. If an economist does not want to end up in a political echo chamber then he should not pander to members of one. But using the free choice framework, it's up to PK and Noah to whom they want to talk. For many economists the choice of an academic versus a popular audience is more contentious than a Democrat or Republican one. To each his own.

But turning to Noah's post ... this directive is at best silly: economists "should deliberately ignore the political implications of the data or theories they report." No. Economics has real world applications and regardless of their political flavor that ought to raise the bar in terms of conclusions drawn from research. I think economists bear some responsibility for how others use their research. A big first step would be clear presentation of the results and the conclusions ... and highlighting areas of judgment or disagreement. (Here I think it would be best to know the politics of the researcher.) I am not saying the burden is solely on economists, but to wash our hands of it seems derelict. We should own our words and thus its best to think hard about where they logically will lead others.

For an example of what happens when economists stop pretending to be scientists and pretend to be engineers instead, look at the disaster of electricity market deregulation. Old school municipal utilities, hardly a hotbed of efficiency, deliver cheaper power to consumers today than the byzantine market structures that "market designers" have wrought. Power prices in many markets are pinned up against regulatory price caps by the generation side traders, as economists protest against "gaming" of their designs.

That inability of economists to understand how real people will respond to regulatory changes is a huge problem. The same failing gave us endemic fraud and ultimately the financial crisis after Glass Steagall was repealed (on the advice of economists.)

You likely don't actually work in the industry. Careful studies have shown that controlling for all other factors, muni customers pay less today than IOU customers. So-called electricity deregulation (which certainly has not reduced regulation) has only enriched consulting economists.

Actually in California, the case of electricity market "deregulation" with the most disastrous outcomes, policy-makers willfully ignored the warnings of professional economists in favor of their own simple-minded Econ 101 version of how electricity markets ought to work. In most states a mixture of lobbyists and legislators'/regulators' vaguely 101ish sense of how markets should work had much more influence than professional economists. I know this from both a) participating in a team of economists advising a different state and b) personal conversation with one of the most experienced and respected electricity market economists, who was among those ignored.

Both men at least act as if they want to achieve the same ends and desire the same policies. However, Stalin doesn't like reform in capitalist countries because of their pro-market implications.

Stalin, as does every true Marxist-Leninist despises any government intervention in the market. Communists, don't want to fix it, but replace it. Countries with mixed economies incorporating some redistribution were very unlikely to embrace communism. In fact, what is the best way to vaccinate against communism seems to land reform (Communists prefer collectivization).

So, dear American economists, if you want communism in the USA, always consider the political implications, instead of helping people.

What this tells me is that politics sucks and empirical economics (whatever that it is in macro) is cool. I don't think its okay to label it conservative vs. liberal economics. Rather its politically charged economics vs. pure economics. Sure sometimes debates on equality and civil liberties are important to discuss within the context of economics but it should only be a small subset, another field rather than controlling all of macro.

"Chris House is thinking about equality-efficiency tradeoffs only in the context of one single policy - redistributive taxation. Yes, that is an important policy. Yes, the tradeoff exists in that realm."

That's still a step too far. There is no reason even in theory to believe the relationship between economic efficiency and equality is a monotonic one even when restricted to the question of redistributive taxation, and certainly no empirical evidence for that tradeoff at or around current levels of inequality. If you prefer to think of the tradeoff as between the progressivity of the tax code and efficiency, well then I sure hope no one thinks the relationship is monotonic, otherwise Chris House would be arguing for taxing the poor to subsidize the incomes of the rich. But if you accept that it isn't monotonic, there is no theoretical argument for assuming that a constant percentage is the optimal way to do an income tax. There are theoretical arguments for assuming that a flat fee is optimal (no incentive effects!) but the conclusion just fails basic plausibility -- an enormous number of people would end up in poverty and, well, sometimes when you see no successful nations doing something it's for a good reason.

You may or may not have reason to suspect we face a trade-off between efficiency and more redistributive taxation, but you're not talking about it as a suspicion, you're talking as though it's settled economics.

And now I read Chris House's second post and see that he acknowledges that it's entirely possible that reducing inequality may increase efficiency... But he thinks if liberals point that out we'll become poorer thinkers too attached to a convenient truth or something.

The comparison to the Laffer curve is instructive and meshes nicely with my own remarks about the relationship likely not being monotonic. But as I see it, the problem with conservatives talking too much about the Laffer curve isn't that it's too convenient, nor that it's not the case in most situations, but that it's almost certainly not the case in our present situation that we are past the Laffer peak. And if we have good reason to believe we are past the level of inequality that is optimal for efficiency, then we should not be talking about an inequality-efficiency tradeoff. And I suspect we are past that point; anyway we are past the normal historical range that has corresponded with well-functioning economies.

There is good reason to believe that an inverted U-shape is the stronger relationship than a monotonic one in either direction. Quite a few studies by people from opposite sides of the ideological divide support this, such as Barro and Duflo.

There is not a single law in econ that has broad applicability such as Newton's laws in physics. All econ laws are man-made, with that we construct socio-political universe. It would work fine if there were not to be any opposing socio-political arguments. You should not be comparing econ to hard and computational sciences because econ can not be verified independently. There is always a new paradigm of the election cycle of the blowhards.

Although I have to say I'm confused. I was always told all economists were enthralled by socialism until Mises and Hayek came along and won the Socialist Calculation Debate. Are you really telling me that wasn't true?!?!?! ;-)

"Neoliberal" can be a pretty broad tent, fitting center-left economists just fine.

"My impression is that economics fell victim to a little of this after the 1960s. At that time, communism was a real threat"I wasn't aware of that. My understanding of the folk-history of economics is that there was a shift to the right around the 70s/80s, but it had little to do communism. There was Friedman, Phelps, Lucas etc going after the Keynesian edifice, but Keynes always looked down on communism as well. Prior generations had developed norms about government in the eras of the New Deal and (beginning of the) Great Society, but dissatisfaction and distrust toward government grew in the late 70s. This wasn't just in the U.S, Sumner has written a lot about the international aspect of the neoliberal wave.

If we go back to the 40s through early 60s, anti-communism would have been a big deal. Robert Kennedy of all people was on the side of Joe McCarthy. All that was compatible with retaining the New Deal, trusting in "best and brightest" mandarins to organize things. The Vietnam war would be an example of an event that was carried out by and led to the discredit of folks who were anti-communist abroad, fine with big government at home.

Economics is like engineering? LOL. Of course not. It's simply laughable to even suggest that. Just because there's a lot of math does not mean it's like engineering. It only works like that in very restricted and well defined circumstances. In general, we know some basic principles and that's it. The rest is too specific and very non-robust, hence it's particularly useless.

It's also too funny to suggest that a political hack like Krugman has anything to do with engineering or science or even economics. He stopped doing economics good 15 years ago.

I think you misunderstand engineering if you are thinking of it as value free. Engineers are frequently political and philosophical advocates. A friend of mine developed the first spreadsheet, fully realizing that it would lead to decentralization of corporate information structure and computerization of small businesses and sole proprietorships. Another guy I knew is a big free / open software advocate, arguing that the building blocks of computation should be as available as roads and streetlights, so let's not forget the engineers who developed our modern road system in the late 19th and early 20th centuries and restructured our civilization or the engineers who developed street lights and changed urban society.

It's easy to overlook others. Architecture and political advocacy have gone hand in hand since the first "big man" built a fancy house as a feasting hall or posted some cave art where the light from a lantern would illuminate it. Biologists are almost always political. Look how much controversy their working hypothesis generates when all they are trying to explain is why there are edible plants and animals, and let's not get into birth control or disease control.

European philosophers and historians often pick up on this kind of thing, sometimes to an absurd extent, but Madonna was onto something with her lyrics about being a material girl in a material world. You'd be surprised what you can learn about society and gender relationships when considering the design of a kitchen stove.

Economists, like just about everyone else, are stuck being advocates. If the facts speak for themselves, then the issue is what facts are collected and how are they measured. (For example, why is the denominator of efficiency usually a monetary quantity rather than a labor hour quantity?)

Beyond Noah's comprehension. He would argue like a Japanese - say nothing! But, in the next blog he will be foaming at mouth like bunch of Jews arguing!!

Economists know they have fabricated a dope called measure of money and everybody is hooked on it because it avoids hunting for the most of us. We would much rather gather and protect through dope. Underlying all this is Darwinian and most economists fail to understand that.

You are interpreting the engineer/advocate split too literally (you must be an engineer). :) It's just a symbol for a dichotomy of different traits and characteristics, which are commonly understood to map onto a "engineer/advocate" dichotomy.

I am an investor now and make pretty decent living; previously, I was in business management and have dealt with economists who perpetually argue while hiding behind their dope impeding many projects. If I had listen to them, nothing ever would have been done.

In response to the question of whether to be advocates or engineers, it is pretty clear that Economics as a field has enough engineers. Most Economists I know are working for large corporations, and almost all of them are engineers within the company, not advocates (there are a few extremely annoying exceptions). They have to forecast demand and prices for their products, and this work does not allow ideology to get in the way. They build structural econometric models, and they let the chips fall where they may. Sometimes the models have implications which could be interpreted in a political way (yes, even microeconomic models of demand can have political implications), but that's not the objective of the analysis. I was at a business economics conference (NABE) a couple of years ago, where someone did a presentation on "Austrian Economics 101." The reaction of the audience was extremely negative, as they saw it either as making no useful predictions or coming from too simplistic assumptions. Business economists are not in a position to advocate in this way. So the job of advocacy falls to academic economists. After all, if good economists don't advocate, the only advocates will be bad economists.

Progressives and liberals promote policies that benefit for the great majority of people. They have little reason to mislead or promote falsehood. In fact, the risk of being caught would be counterproductive which is what conservatives try to play gotcha.

Conservatives generally promote policies to protect the wealth and status of a small but influential group of wealthy elites. The policies often work to the detriment of the masses. Promoting these policies necessitates hiding the truth from the masses, convincing at least some of the people that the policies will work otherwise. If everyone voted their narrow self interest, conservatives would lose, Big Time. They cannot win a majority approval by honest means.

"...criticizing Paul Krugman and me for being too politically liberal..."

The problem isn't whether you are a liberal, a conservative, or a two-headed meerkat. Sargent's speech is simply an unobjectionable, apolitical, set of economic ideas, that ecompasses many disparate views that are well-represented in the economics profession.

When you say that it's conservatives that are objecting to minimum wages and rent controls, that's nonsense. These are standard Econ 101 examples of policies promoted by people with good intentions which don't have the intended effects. I was taught principles of economics from Dick Lipsey's book, and he made a big deal of the difference between positive and normative economics. As an economist, suppose you're giving policy advice to someone who wants to help poor people. You don't make a value judgment about whether it's a good idea to help poor people or not, you just take that as given, as a professional. Should you help poor people with minimum wages and rent controls? No, there are better ways to do it, and econ 101 shows you why. If you think that's a conservative idea, you're pretty goofy.

Sure, most of Sargent's speech is as yiou put it, "simply unobjectionable" and "standard Econ 101," but the one part that Noah and others have pointed out is not so is indeed baloney, and it involves what has become the most hotly debated issue of the day, that of income inequality. This seven-year old speech repeats an old textbook lie, that there is this general "equity-efficiency tradeoff." Sorry, but that is baloney. As has been noted in this thread several times, the best studies at the international level suggest that it is probably an inverted U-shaped curve: nations with very high levels of equality may damage their economic growth by trying to become more equal, whereas those with high levels of inequality would experience the opposite.

Indeed, just to hammer this home, let me note an exmple not mentioned so far in this thread: Latin America. Over the last decade or so, a large number of Latin American nations, including major ones such as Brazil and Mexico, have experienced both increasing equality of income and improving overall economic performance, including economic growth rates. Having started from having among the world's highest levels of income inequality, this performance strongly fits with this argument of a generally U-shaped function out there.

Now Sargent may not have been aware of this trend back in 2007 when he made his speech, but the question becomes even more pointed regarding what these people think they are doing who have been dragging his speech out to spout on about how great it is, when how it addresses the most important economic issue of the day is just dead wrong.

Sure, most of Sargent's speech is as ....like you put it, "simply unobjectionable" and "standard Econ 101....basic e-con

others have pointed out is not so is indeed baloney, because? lacks argumentation and it involves what has become the most hotly debated issue of the day, of the last millenia .....and since 1917 the system ....that of income inequality.

This seven-year old speech repeats an old textbook lie, that there is this general "equity-efficiency tradeoff." Sorry, but that is baloney. As has been noted in this thread several times, the best studies at the international level suggest that it is probably an inverted U-shaped curve: nations with very high levels of equality may damage their economic growth by trying to become more equal, whereas those with high levels of inequality would experience the opposite.

Indeed, just to hammer this home, let me note an exmple not mentioned so far in this thread: Latin America. Over the last decade or so, a large number of Latin American nations, like Argentina? Venezuela? including major ones such as Brazil more than 3 million square miles and overpopulated Mexico, have experienced both increasing ---------yesssss equality of income in drug related areas? and improving overall economic performance, including economic growth rates selling to china raw mineral ores and foodstuffs Having started from having among the world's highest levels of income inequality like in haiti?, this performance strongly ? weak....fits with this argument of a generally U-shaped function out there...where where?

Nothing to do with drug gangs, except maybe in Mexico. See "Declining Inqequality in Latin Americ in the 2000s: The Cases of Argentina, Brazil, and Mexico," World Development, 2013, 44, 129-141, by Nora Lustig, Luis F. Lopez-Calva, and Eduardo Ortiz-Jurarez. From their summary:

"In depth country studies for Argentina, Brazil, and Mexico suggest two main phenomena underlie this trend: a fall in the premium to skilled labor and more progressive government transfers."

The problem isn't whether you are a liberal, a conservative, or a two-headed meerkat.

For Chris House, that does appear to be an issue.

Sargent's speech is simply an unobjectionable, apolitical, set of economic ideas, that ecompasses many disparate views that are well-represented in the economics profession.

Well, there is the possibility that I read him wrong, but it seemed to me that he chose his list with the (assumed) political leanings of his audience in mind.

When you say that it's conservatives that are objecting to minimum wages and rent controls, that's nonsense.

My point about minimum wage was intended to illustrate the fact that sometimes even a conservative should not believe in the existence of an equality-efficiency tradeoff. You seen to agree completely with my point.

For the record I apologize for using overly strong language here, but really, people continuing to claim that Sargent's remarks on the equity-efficiency tradeoff are "unobjectionable" really need to face facts.

SW is right. The problem truly is not liberal or conservative...The problem is self-preservation. In order to retain marketability in academia, academics at somewhat mediocre places have to show publications in top journals. Journal space has not kept pace with the number of people doing research and is typically reserved for the "best" scholars, who then become the gatekeepers in journals. Sargent and his students continue to be gatekeepers at some of the top journals. Krugman has never really been a gatekeeper. So when SW has to “defend” Sargent against the renegade Krugman, he is really doing this so the gates to all the top journals remain “open” to him. Note: Sargent probably doesn’t disagree with Krugman as much as SW does. Clearly, the defender of the faith is more religious than the saint himself… his livelihood depends on it. Spare him.

sovietic economy for instance, or China economy, china not chinese, At that time, communism was a poor economic threat. If communist policies (meaning a state - style command economy, not Sweden-style redistribution) had been enacted in America, it would have been a massive human disaster.,,,why? you're not russians you should have transformed the sovietic economy in some NEP - kulak style economy ...

So economists became a self-appointed bulwark against communismso many errors to make in a lifetime and the american's make the same error times and times again ...

Sorry, Solveig, who may be Icelandic based on last name. You are wrong. I just looked at employment rates. Sweden is 7th out of 36 nations listed, with high welfare state Norway, Denmark, and Icelland among those ahead of it (throw in Switzerland, Netherlands, and New Zealand for the rest). The US is 16th out of this 36. Not evidence of "a high rate of people doing nothing."

Oh, and Sweden has had some very wealthy families who have been wealthy for long periods of time, such as the Wallenbergs.

the wallenbergs are feudal masters, and the swedish landscape are feudal till the beggining of the XX century, the iron of Kiruna and the TNT of Nobel and the sales in 70 years of two world wars and cold wars make the wealth of many many swedish Bank accounts in Swiss Francs, i know one master that have only 1billion less than kadahfi in the Credit Suisse and Baer Bank and you know...

Note the gross equivocation in House as quoted (in little bits) by you ""the facts have a conservative bias", " The truth is that most of the principles" " In the title of his first post, House refered to "facts" now he refers to "principles". He clearly thinks that the standard assumptions made by economists should have a status similar to facts.

I think this shows a failure to understand the first principles of the scientific method which is very common among economists. I am now certain that House equates the standard assumptions of economics 101 with discoveries and does not understand that in science theories bow to data.

You may recall that I guessed at the time that House meant "standard models" when he wrote "facts."

I don't think that facts have a conservative or liberal bias but they are biased against the people who think they have the above bias.

What I find absurdly rich is that someone who is extremely, over the top and obnoxiously tribalistic and his politics as a certain kind of liberal constantly informs his economic conclusions and advocacy and thinks that facts have a liberal bias, argues for this kind of thinking to be a problem.

MMMM? Late to the party as usual. Not going to read all the comments so as not to duplicate someone else's comment.Engineers who design bridges that fall down get kicked out of the profession. Economists who design policies that ruin the economy get rewarded. Funny that.

"Chris House is thinking about equality-efficiency tradeoffs only in the context of one single policy - redistributive taxation. Yes, that is an important policy. Yes, the tradeoff exists in that realm."Actually, in the realm of redistributive taxation there are also marginal policy changes that can increase efficiency without sacrificing equity, such as the negative income tax.